There is an old East Texas saying: “Are you the pig or the chicken?” This is in reference to the breakfast meal with bacon and eggs … the chicken is part of the meal but the pig is really committed. I have used this analogy many times in discussing business models with wholesalers and suppliers.

In talking with wholesalers all over the country, many claim they are “committed” to either the import or craft segments. Having Corona or Heineken in one’s portfolio, however, doesn’t make one committed to that segment. Nor does having Boston, Sierra, or New Belgium in craft make one committed to that segment. Having a Speciality Sales Manager is certainly a start, but this falls more along the lines of being a chicken, than a pig.

Some years ago, while visiting JJ Taylor in Tampa, I learned about the model they were building to address the changing business and I was quite impressed. While realizing the importance of building the sales/marketing function, JJ Taylor first decided to build an infrastructure to handle logistics and warehousing. I saw first-hand the investment this company had made to “do it right.” Once completed, JJ Taylor then moved to expand their sales team knowing the volume could be supported. In this instance, JJ Taylor would be considered the “pig,” … totally committed.

The same rules apply when dealing with importers/breweries. Many think (or wish) that all they have to do is bring their brand to market and it will sell. Theses importers/breweries don’t understand the size of the investment required to establish a US business. Nor do they comprehend the amount of time, and I’m talking years, that it takes. Getting a distributor network is the easiest part, supporting it is the hardest part. At this point, the importer usually is considered the “egg.”

Some years ago at Glazer’s, I was contacted by the largest selling brewery in Germany. This brewery had sent a rep to the States and he was living in New Jersey. The rep want Glazer’s to distribute his brewery’s products in all 12 states. On five separate occasions I asked him to present and explain his marketing plan. Each time his response was “we are the largest selling brand in Germany.” In other words, he had no plan, no support, no marketing, no sales force. Needless to say his products never got off the ground.

In the early 90’s, I worked with a contract brewer who had acquired the brewery name and brands from a very successful oil wildcatter who had decided to get into the beer industry. The wildcatter had actually uncovered and trademarked the old “Texas Brewing Co.” name and 13 labels. The brewery had closed during prohibition and had never reopened. The wildcatter built a small micro brewery in downtown Dallas, received the required license, and started brewing. Soon, however, the wildcatter learned he couldn’t sell his product directly and that he had used the incorrect bottle size and packaging. In reality, however, this individual’s real problem was poor quality beer.

Eventually, the wildcatter sold to another company who retained Stroh Brewing Company to brew the beer. Consequently, Stroh improved the quality and packaging of the beer. At the request of the owner, I set up a beer distributor network, however, he subsequently decided to go statewide with a W&S house. A year later the owner and I met again for lunch. His request at the time: “Help me sell this business.” He owed $26K in bill backs to the distributor and had only produced one order. Shortly thereafter, the owner closed down and the creditors took over the brands.

So now when I discuss business models with importers/crafts I ask them, “What are you having for breakfast, eggs, bacon or both?”

In professional golf it takes 72 holes to win a tournament, the Thursday round can put one in position, either to win or plan on an early exit.

I’ve visited hundreds of wholesalers, and many, especially in recent years, have described their business model as “brand builders.” Really? My former Brand Director (MBA-International Marketing, 30+ years in the beer business) and I were discussing distributor “brand building,” and he questioned this philosophy. Some things to consider: what distributor has created a brand, designed the packaging, developed the strategy, finalized the tactics, designed the p-o-s, hired the ad agency, completed focus groups, developed pricing matrix, made chain calls, and in some cases ATL marketing? Recently I was with a large wholesaler and asked him his definition of “brand building” His response: “No money!” Think about it!

In my contact list I may have 1,000+ business contacts, most from wholesalers. Not one states “brand builders.” Nope, they almost all say “Distributor and/or Wholesaler.” In fact, in the dictionary under “distributor” there is no reference to “brand building.” As a former boss used to say ” it’s the distributor’s job to get the dog food on the shelf, however, it’s the vendor’s job to get the dogs to come and buy the dog food!” To a great degree, that defines “brand building” better. Without the distributor getting the product to retail, on the floor, and in the shelf, there is no “brand building.” If the distributor defines the term “build a brand” in that sense, I understand.

Distributors asked me what my expectations were regarding the roll out of Krombacher. Most of them were looking for a “sales number.” My response? I expect you to execute, period. We didn’t know just how the brand would be accepted by the consumer, so the only way to get some idea was to have the distributor put the beer in the market. The distributor was to focus on our target accounts which were developed from the strategy we presented. If the brand was in the “right accounts,” and didn’t sell, it could have been a number of things: packaging, pricing, marketing, etc. You get the picture. We couldn’t determine what might be needed without the distributor getting the distribution.

I visited three large wholesalers in a major city in an attempt to assign Krombacher to one of them. After several visits and presentations, the one we chose had the best written go-to-market plan. Six months later, they had distribution in five on premise accounts (out of thousands). I went to two of them, one already had DQ’d it for another of the distributors brands, and the other didn’t even know the name Krombacher. Their response? “We need someone from the brewery in the market!” Now how can any vendor determine just what support is needed when the brand is not available to the consumer?

Shouldn’t “brand building” on the distributor tier be defined more in line with professional golf? If the distributor doesn’t execute on Thursday, the tournament is lost, and usually, lost forever. Someone else will win and both the distributor and vendor lose.

When I purchased the 7th largest Schlitz operation located in the Rio Grande Valley in early 1981, Schlitz was still the #1 brand in the market. Over the next several years, however, the Mexican trade was lost due to a massive devaluation of the peso; the area was hit by the worst freeze in 100 years, destroying all the citrus crops; oil prices rose, and sky-rocketing interest rates all took their toll on the South Texas/Mexican economy. Our unemployment rate approached 50% and the market shrank accordingly. To make matters worse, the Jos. Schlitz Brewing Company, with all its problems, sold out to Stroh. Within a short time, all of our Schlitz support was either terminated or dramatically reduced.

Even with all these difficulties, Schlitz still had a good market share several years into the venture, but Miller Lite was on fire and growing so fast it was really something to watch. We tried everything to slow Miller’s growth, but to no avail. Around the mid 80’s, I was in a golf tournament in my market playing with a couple of young men (early 20’s). The conversation turned to beer and I told them I owned the Schlitz operation. The immediate response from the group was “Schiltz… was my father’s beer, not mine!” I knew then we were fighting a losing battle and no amount of money was going to change the image this age group held of our product.

The South Texas/Rio Grande Valley populations is currently over 90% Hispanic and I have watched it with interest over these years. Schiltz, #1 in the 60’s, 70’s and very early 80’s, lost its position in the marketplace to Miller Lite; who then, in turn, lost it to Bud Light, who now is losing it to Michelob Ultra. Each generation of beer drinkers gravitate to “their” beer, not “their fathers’ beer.” To this day Miller Lite is still losing share and volume even with the vast funding being dumped into marketing.

Over the years the industry has seen many brands die. In addition to Schlitz; Pabst, which is now coming back, saw market share decline to almost nothing in the past decades. Other brands that have declined and/or disappeared over the years include, but are certainly not limited to: Hamm’s, Olympia, Pearl, Falstaff, Schaffer, Primo, Jax, Southern Select, Grand Prize and more. Many of these brands died due to their management and the influx of new brands. What would have happened to Budweiser, Miller, and Coors if Bud Light, Miller Lite and Coors Light were never brought to market? Would the “mother brand” have survived or would it have become “your fathers’ beer?” I’ve always wondered.

Could this same trend be what we are seeing happen to early and successful crafts including Sierra Nevada Pale Ale, Sam Adams Lager, and even Fat Tire? Are these labels becoming like Schlitz? To remain relevant, breweries are diversifying their portfolio with new products and line extensions. Distributors should do the same, and many have.

While you may support the “anchor distributor” concept, the risk of your main brand becoming “your fathers’ beer” is too great to leave to chance. So when a brand continues to die, when does the distributor make the decision to save the brand versus just trying to salvage what can be retrieved from that brand?

There is a lot of talk about the upcoming price increases and their effects on the market. I’ve have received e-mails from several of you regarding this round of increases as Nielsen All Channel scans show volumes flat, but pricing up 2.7%. In fact, volumes have dropped from +1.2% to flat over the last year. Note too, that the amount of beer sold on promotion is down. A prelude to the upcoming price increases?

In the mid 70’s, Coors Brewing Company was reprimanded and placed under a two-year moratorium regarding price discussions when a conversation between the brewery and a wholesaler was recorded by the later. From that point forward, the talks on pricing between wholesalers and vendors always included the words “recommended” or “suggested” in the discussions, and all price letters to wholesalers had the language “we recognize your right as an independent wholesaler” and “businesses to set your prices accordingly.”

Leegin Creative Leather Products, Inc. v. PSKS, Inc. 551 U.S. 877 (2007), is a US antitrust case in which the United States Supreme Court reversed the 96-year-old doctrine that vertical price restraints were illegal per se under Section 1 of the Sherman Act. The afore mentioned case replaced the older doctrine with the rule of reason. Resale price maintenance (RPM) is the practice whereby a manufacturer and its distributors agree that the distributors will sell the manufacturer’s product at certain prices: at or above a price floor, or, at or below a price ceiling. If a reseller (distributor) refuses to maintain prices, either openly or covertly, the manufacturer may stop doing business with said wholesaler. This marked a dramatic shift on how attorneys and enforcement agencies addressed the legality of contractual minimum pricing, and essentially allowed the reestablishment of resale price maintenance in the US in most commercial situations.

It’s safe to say that the courts will weigh in on this topic in the future. Actually, it is somewhat surprising that this hasn’t been a topic of discussion between all parties given the aggressive pricing in recent years. Perhaps the recession put this on the back burner. Wholesalers, in almost every situation, made sure they communicated their “minimum” GP. From the vendor’s prospective, pricing models today are usually worked backwards by working off the markets’ chain leader(s) and their pricing, adding in the wholesalers GP, and then, if there is a profit, that, too, is included. All taxes, freight, etc. are added in. At Warsteiner, we analysed each wholesaler’s contribution to our overall financial success. If the PTR was non-competitive then our numbers were negative. In all cases, profitability was volume driven. So is it better to sell 10 cases at 30% or 1,000 cases at 24%? This brings me back to our case.

How the major breweries approach pricing will probably be still considered antitrust, which would still be illegal. With the smaller breweries, however, such discussion could be considered anticompetitive. This changes the dynamics of the discussion. Either way, Leegin Creative Leather Products, Inc. v. PSKS, Inc has changed the pricing paradigm. Get ready. Remember though, if your price point for beer is so high no one buys it, what good does it do you?